The PML-N government has repeatedly vowed to create an enabling environment for business and investment. Its leadership believes the state cannot be the main job provider to millions of aspiring job-seekers and real economic turnaround cannot be ensured without promoting large-scale industrialisation in the country. The government also knows there is a lot of scope in the services and agriculture sector provided it overcomes the challenges it faces.

Still, local and foreign investment coming into different sectors of the economy is far less than desired. At home, a large number of people prefer to put their money in the real estate sector, gold and stocks, etc, and avoid setting up businesses and manufacturing concerns.

The biggest issue that discourages investment in businesses is the energy crisis. In Pakistan, energy is scarce and alternative fuels expensive. Thus, manufacturers are shutting down their units and becoming importers of the products they once used to produce.

The country’s textile industry is feeling the heat as well. Anis ul Haq, Secretary, All Pakistan Textile Mills’ Association (APTMA), tells TNS that undisrupted availability and cost of energy are crucial for this sector. "The energy cost," he says, "is roughly around 35 per cent of the total cost of conversion of raw material into finishing product at a manufacturing unit."

Ensuring sustainability of the existing industries is a major challenge for the government, therefore, Haq fears, closure of several textile units in days to follow.

Though with the opening up of European markets for Pakistani exports, potential investors’ interest in textiles has increased still they are keenly watching the developing scene before taking a final decision. Because, Haq says, there are different gas supply schedules and tariffs for different provinces which discourage investment.

As for Foreign Direct Investment (FDI), there is no doubt that the ever-worsening law and order and terrorism situation is the biggest threats faced by overseas investors. Travel advisories issued by foreign offices of different countries direct their citizens not to travel to Pakistan or to take extreme care if travel is unavoidable.

A manifestation of these fears can be seen during the grant of 50 oil and gas exploration blocks at the start of the year. Despite lucrative incentives, only two new companies, Canada-based Tallahhasse and local firm Al-Haj Enterprises entered the exploration sector of Pakistan while all other successful bidders were already operating in the country.

Similarly, all the bidders for 3G and 4G licenses are established telecom sector players in the country. No new investor availed this option. It was more of a requirement for them to stay relevant in an emerging market than an independent decision to increase their investment in the sector. The license for 4G was granted against the reserve price and there was no competition in this regard.

So, expecting foreign investment without improving the security situation in the country will be too ambitious an approach. This is no small challenge and the government will have to pursue it endlessly.

S. Mushtaq Ahmed, a wholesale dealer and traders’ representative at Shah Alam Market, Lahore, says the high cost of doing business is discouraging investment. The bank interest rates for the manufacturing sector are 15 to 16 per cent against 7 to 8 per cent in the region.

Besides, he says, "cheap products are easily smuggled into the country and in certain cases dumped here. In these circumstances, it is better to import goods and sell them to distributors. Do you think it is wise to go for manufacturing?" he questions.

Muhammad Arif Bhatti, import manager at Style Textile, believes, "Investment culture can be promoted by giving incentives to export-oriented businesses as they cater to global as well as local demands. For example, if the government allows duty-free import of textile machinery to set up textile units, more people will divert their investments here," he adds.

The real challenge for the government is if it has the fiscal space to forgo import duties.

APTMA Secretary, Anis ul Haq, suggests, "The government should support the textile sector by offering rebate, etc, as it has suffered a lot due to abrupt fall in the value of rupee. The industry has bought raw material in advance at high dollar rate but as the time of delivery nears it is facing losses due to lower dollar to rupee rate."

Haq further says that India had done so in 2007 when Currency Exchange Association of India and the Reserve Bank of India (RBI) sat together and compensated exporters who had suffered due to sudden appreciation of local currency -- "This is highly imperative to woo investors in this sector".

An official in the federal finance ministry, who does not want to be identified, says privatization is another major challenge for the government as it has failed to devise a foolproof mechanism to go ahead with the process. "The investors are confused due to the mishandling of earlier privatisations. Take, the Royal Palm Golf Club on railways land. The deal is being questioned in the apex court at a time when the government is talking about privatising a large number of state-owned entities."

The government has failed to appoint permanent heads of many regulatory authorities. Also, foreign investment in the energy sector has suffered due to delay by OGRA in determining tariff rates for the electricity which different aspiring electricity producers will produce. "Individuals heading these bodies are reluctant to take independent decisions as they fear they will face similar treatment as meted out to their predecessors by the Supreme Court."

The circular debt has again risen close to Rs300 billion, which shows that the government has failed to tackle causes that lead to such accumulations.

The government even announced an amnesty scheme for people to convert their black money into white by investing in different sectors, but they refrained, to avoid documentation.

Energy, textile, agri-processing, dairy, food processing, tourism, etc, are sectors offering opportunities to the local and international investors. How to tap this potential, dispel fears of investors, improve security situation, provide enabling environment to businesses are questions that continue to haunt the ‘investment-friendly’ government.